Hello. For this year (2024) I began buying packs of Pokemon trading cards in large quantities and opening them up. I am having certain cards professionally graded and hanging on to them as investments. I started also selling the cards i’m not grading on eBay a few months ago and have made about $2,000 in over 250 orders. I plan to continue buying and selling cards at this pace for the foreseeable future I realize there will be tax implications for this.
I have two main questions here. For one; I don’t know if this would be classified as a hobby or a business. I am leaning toward hobby because I have spent way, way more
money buying the packs than the value I’m getting back for selling them. However the long term value of my graded cards is uncertain and if they appreciate significantly this hopefully will be profitable for me.
my next question would be how to account for the cost of goods sold when doing my taxes next year. My understanding is that if this is a hobby, I cannot deduct anything beyond the cost of goods sold. The tricky part here is that I’m buying sealed packs of cards and not individual cards. For example, let’s say I purchased a box with 10 packs of cards for $50. Each pack has 10 cards inside of it (9 common worthless cards and one rare potentially valuable card) I open all 10 packs and there are two rare cards worth selling and I sell them for $10 each while the rest of the cards go in the trash.
so in this scenario, I spent $50 and am getting $20 back. Obviously I did not make any money from buying this box. However I don’t know the rules for how to account for this. I’m thinking it would be logical to consider the cost basis of each pack to be $5, since there are 10 of them I bought for $50. And so I could deduce $5 as the cost basis from
each of the $10 cards I sold. Hopefully this makes sense. And would this method be different if I was filing as a business vs a hobby? Thanks so much.
